Obama Cabinet No-Shows for Veterans Panel Spring to Life on Death Benefit

By Tony Capaccio and David Evans -
Aug 5, 2010

A half-dozen members of President
Barack Obama’s Cabinet sit on an advisory council overseeing
life insurance for U.S. military forces, a program facing
investigations of whether insurers are unfairly profiting from
policies of dead soldiers and veterans.

The last time the Advisory Council on Servicemembers’ Group
Life Insurance met, in November 2009, none of the Cabinet
members attended. Aides accustomed to handling the issue for
their agencies went as representatives.

Now four of those Cabinet members, Treasury Secretary
Timothy Geithner, Defense Secretary Robert Gates, Commerce
Secretary Gary Locke and Health and Human Services Secretary
Kathleen Sebelius, have joined members of Congress and Veterans
Affairs Secretary Eric Shinseki in calling for an examination or
overhaul of the way death benefits are paid to the families of
fallen soldiers.

Bloomberg Markets magazine reported on July 28 that
Prudential Financial Inc. offers to hold lump-sum payments for
beneficiaries in the company’s coffers. The insurer pays
interest on accounts currently held for about 10,000
beneficiaries, and makes money by investing the funds. The
accounts provide limited, checkbook-like access and aren’t
federally insured.

Since the report, members of Congress are filing
legislation and demanding action.

‘Disgraceful’

“It’s disgraceful on the part of insurance companies,”
Senate John McCain, an Arizona Republican and onetime prisoner-
of-war in Vietnam, said in an interview on Bloomberg Television
yesterday. “We’ll obviously have to be looking into it.”

The VA says it is examining life insurance practices, with
backing by Cabinet members charged with overseeing the program.

“The families of servicemembers who sacrificed their lives
to defend our country deserve our swift attention to this
matter,” Locke said in a statement. “I support the VA’s
efforts to take a hard look at these practices.”

“Our men and women in uniform, including those who have
sacrificed their lives for our country, and their families,
deserve a thorough review of the program,” Andrew Williams, a
spokesman for Geithner, said. “The Treasury Department takes
concerns raised about this program seriously and will work with
the VA on the review.”

Prudential, the second-largest U.S. life insurer, is the
sole provider of life insurance for 6 million U.S. military
personnel and veterans. Prudential spokesman Bob DeFillippo said
the Newark, New Jersey-based company is “working with the VA to
address concerns.”

Advisory Panel

The secretaries of Treasury, Defense, Commerce, Health and
Human Services, and Homeland Security, along with the Cabinet-
level director of the White House Office of Management and
Budget, serve on the advisory council. Treasury Secretary
Geithner, by law, is the panel’s chairman.

The council held its last meeting on Nov. 19, 2009, at an
Embassy Suites hotel in Washington. None of the Cabinet-level
members attended, the meeting’s minutes show.

After Gates voiced concern about the insurance program --
saying the magazine’s report was “news to me” -- Pentagon
spokesman Geoff Morrell said Gates wasn’t aware he was a member
of the advisory group.

‘Asleep at the Wheel’

“We are disappointed so many administration officials
appear to have been asleep at the wheel while Prudential stole
hundreds of millions of dollars in secret profits from grieving
families,” Paul Sullivan, executive director of Veterans for
Common Sense, said in an e-mail.

As is customary for the federal government’s many advisory
councils, a Veterans Affairs official said, the department heads
routinely send representatives -- in some cases aides who have
served in this role for years.

“You want the experts on the panel,” said John Gingrich,
Shinseki’s chief of staff. “The council, VA -- all of us --
remain committed to having the most knowledgeable people serving
on the panel and working in the best interest of our veterans
and their families.”

The council meets “at least once a year” to “review the
program and advise the secretary on matters of policy and
operations,” Gingrich said. “The advisory council gets briefed
on what’s going on, how much money is going out, how many death
benefits.”

Lack of Interest

Still, having insurers profit by investing death benefits
looks like “sweetheart deals, and the lack of interest of the
Cabinet members is a shame,” Robert Hunter, insurance director
for the Consumer Federation of America, said in an e-mail.

Prudential executives, Veterans Affairs officials and staff
aides from the House and Senate Veterans Affairs committees
attended the council’s last meeting, the minutes show.

The Pentagon sent two staff members, including a colonel,
minutes show. Homeland Security sent a Coast Guard official.

A spokeswoman for Sebelius, Jessica Santillo, said that
department “supports the VA’s review of these accounts to
ensure that the families of servicemembers and veterans are
fully protected and treated fairly.”

The OMB didn’t respond to requests for comment about its
former director’s role on the council. Peter Orszag, who has
left the office as director to serve as a distinguished visiting
fellow at the Council for Foreign Relations, said through a
spokesman, research assistant Peter Tillman, that he isn’t
fielding media requests for interviews at this time.

Representative Debbie Halvorson, an Illinois Democrat, has
filed legislation to require life insurers to tell beneficiaries
how their money will be invested and how much the insurer stands
to make from holding the funds. Charles Schumer, a New York
Democrat, is drafting Senate legislation on government life
insurance programs.

Representative Walter Jones, a North Carolina Republican,
is seeking House and Senate hearings on the issue.